Futures Lower Overnight, BoJ Action Eyed

The weakness in U.S. Tsys allowed JGB futures to soften in overnight trade, although it wasn’t a one -way session, given the impact of the latest chapter of the ongoing UK political saga. That left the contract -8 at the end of post-Tokyo trade.

• National CPI data has just hit, pretty much matching wider expectations, with the headline printing +3.0% Y/Y, while the core measure accelerated at the fastest pace since ’91, when excluding the impact of sales tax hikes. This data won’t move the needle for the BoJ, with the Bank stressing that it will maintain its easing given the cost-push nature of the current inflationary impulse, as it looks to foster the environment to generate meaningful wage growth.
• 1- to 10-Year BoJ Rinban operations providing the highlight when it come to the remainder of Friday’s local docket. We could see an upsizing of the BoJ’s purchases given the fact that 10-Year yields continue to probe the upper end of the BoJ’s permitted target band, with yesterday’s off-schedule purchases having little impact given wider bond market dynamics.
• We also note that 10-Year swap spreads are above the levels that prevailed in mid-June (when the BoJ was forced into a more aggressive defence of its YCC scheme), with participants once again seemingly testing the BoJ’s resolve via this channel ahead of next week’s monetary policy decision.
• International investors were marginal net sellers of JGB futures last week, per JPX data, although the net -75 brokerage print is very close to 0, so isn’t of any real note.